Megatrends

The most influential Megatrends set to shape the world through 2030, identified by Euromonitor International, help businesses better anticipate market developments and lead change for their industries.

Grocery Retailers in Russia

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Executive Summary

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TRENDS

The ongoing economic crisis and its consequences continued to have a major impact on the development of grocery retailers in Russia in 2016. The stagnation of real wages and rising retail prices resulted in low consumer purchasing power. In addition to lower consumer demand, retailers suffered from the low Russian ruble exchange rate and rising distribution prices and operating costs. In addition, the channel was heavily impacted by geopolitical factors. Western sanctions over the Ukraine crisis, and Russia’s response in the form of a ban on certain products, were extended and tightened in 2016. Russia was one of the most important destinations for EU exports from the beginning of the 21st century, whilst the lion’s share of products and raw materials were imported to Russia. This led to an increase in imports from countries which were not included in the sanctioned list, such as Turkey, Colombia, Pakistan and Kazakhstan, and the growth of domestic production. In addition to the increase in imports from new destinations, sanctions laid the ground for the development of domestic production. A new emerging trend of farm products continued to spread amongst retailers. It should be noted that Russian grocery retailers adapted to the turbulent market environment and lower consumer demand, and found solutions to continue developing in 2016.

COMPETITIVE LANDSCAPE

In 2016 Magnit continued to strengthen its position in grocery retailers, accounting for a 9% value share. The company operates a chain of 170 supermarkets, 228 hypermarkets and 9,902 convenience stores under the retail brand Magnit. Besides, Magnit managed to achieve good results in drugstores/parapharmacies, occupying the leading position in this channel. The key strengths of the retailer are its wide regional presence, recognisable brand, developed logistics system, high quality, wide range of products and competitive prices. In 2016 the company continued to develop its private label brand, which accounted for a 10% share of its revenues. In 2016 Magnit was ranked third in value terms in the 200 Biggest Russian Non-governmental Companies by Forbes business magazine.

PROSPECTS

Grocery retailers is predicted to see a value CAGR of 3% at constant 2016 prices in the forecast period, to reach RUB12.7 trillion in 2021. Despite the fact that players have adapted to the current turbulent market environment, they are expected to continue suffering from the consequences of the economic crisis in Russia. In addition, retailers will continue to focus on the optimisation of all operational processes, starting from the supply chain and finishing with the range of products presented in stores. The main focus will be to find a balance between operational costs and retail prices in order to remain competitive and maintain consumer demand.

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